There has been a significant backlash against the government’s attacks on the buy-to-let sector from politicians, providers and investors alike.
In January this year, the former Conservative shadow chief secretary to the Treasury, Lord Flight, condemned the government for the changes to taxation. He called on minister to rethink the proposals - particularly the 3 per cent stamp duty hike - claiming: “This will hit more modest buy-to-let investors the most.
“Politically the government may lose more votes over this issue than it realises, as there are many thousand buy-to-let investors living in marginal constituencies.”
Meanwhile, a petition was launched by a coalition of small landlords, called ‘Reverse the Planned Tax Relief Restriction on Individual Landlords’, which accumulated 60,892 signatures.
It called for the government to reconsider the wear and tear changes, claiming that “this is preventing us from offsetting costs in the same manner as other sole traders”.
However, predictions of a slowdown in the sector as a result of the changes have so far proved unfounded, with the latest figures from Connells showing the number of valuations for buy-to-let purposes had grown by 51 per cent between January 2015 and January 2016, while the remortgaging sector soared by 97 per cent over the same 12-month period.
John Phillips, group operations director of SpicerHaart and Just Mortgages, said: “Some people said the tax change would prompt a slowdown in the sector but for the moment this is not happening.”
Both sectors experienced steadier performances on a monthly basis, with the number of valuations carried out for buy-to-let investors in January climbing 11 per cent on the previous month.
While this may be a last-ditch attempt to invest in residential property before the changes kick in is yet to be seen; data will not be available on this until at least May 2016.
However, what has been happening is more small buy-to-let investors seeking advice on constructing a special purpose vehicle (SPV), so they can buy property through a limited company in order to avoid the impending stamp duty surcharge.
John Heron, managing partner of Paragon Mortgages, suggests doing this “as soon as possible while these changed have a phasing-in period of four years”.
|Cost calculations of the tax relief changes|
|Imagine a landlord with multiple properties generating £200,000 rental income a year.Suppose he pays £180,000 in mortgage repayments. Currently this would give him a £20,000 profit, combined with non-property earnings of £45,000, would give the landlord an statutory total income (STI) of £65,000.However, under the new rules, the landlord would see the STI jump to £245,000 with a corresponding increase in tax.Source: Paragon Mortgages|
Christine Newell, mortgages technical director at Paradigm Mortgage Services, explained: “Holding property in this way means that a landlord will pay corporation tax instead of income tax, which could help lessen the impact of the tax changes on the personal income of a landlord.”